The Bonus Plan Hypothesis predicts that managers of firms with bonus plans are more likely to shift reported earnings from future periods to the current period to increase their bonuses in the current year.
Assume you are able to obtain managerial bonus contracts for a set of firms. Describe how you could use an approach similar to that used in Dichev and Skinner (2002) to test the Bonus Plan Hypothesis. Your description should include examples of what distributions you would study and specific predictions that would be derived from the Bonus Plan Hypothesis.